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Why raising FDI caps won't help?
Mon, 22 Jul Pre-Open

India has in the past eight months embarked on a bold programme of liberalisation and economic reform in an effort to attract foreign investors and revive economic growth. The much talked about FDI in multi brand retail was allowed in September last year. But till now not a single investment has poured into India. Indian businessmen are also not investing in India and prefer other countries because of various hurdles and government's policy of repeatedly changing the rules of the game after capital has been committed.

The environment for doing business in India is tough. There are several reasons for this. Bureaucracy and corruption are the major factors affecting India's image as a favored destination for foreign investment. There are also questions over transparency and judiciary system. The legal process in India can be time-consuming and cumbersome as well.

Frustrated with India's policies, land acquisition problems, and slowing economy, foreign investors like US retail giant Wal-Mart, insurer Berkshire Hathaway and steel companies Posco and Arcelor Mittal all pulled back on Indian investment plans this week.

Multinational firms entering India assume that India has a large workforce. However, most of the Indian population resides in rural areas and illiteracy rates are still high in India. Secondly, a high percentage of people even in urban areas are self-employed. Moreover, with increase in urban middle class incomes, the percentage of working women has decreased. Hence, the employable English-speaking workforce is less than quarter of the urban population.

Just the announcement of opening up of FDI cannot be termed as a reform. The announcement in no way makes India an attractive investment destination. It is the ease of doing business that attracts entrepreneurs. But this would require efficient governance, which the present government seems incapable of.

The day the government creates a transparent and easy way of doing business in India, there will be enough Indian entrepreneurs lining up to set up businesses. The country would then not require foreigners to help in employment creation.

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